Social Networking Sites: Word to the Wise

FINRA has put out guidance on the topic of social networking sites (SNS). The explosion of electronic communications in many forms has made it difficult for BD’s to know how to follow SEC books & records rules. It used to be straightforward, but with tools like Facebook & Twitter, it’s tough to decide what constitutes categories like advertising, public appearance, correspondence and recommendations. I suggest you read Notice 10-06 (it’s not long!) so you are aware of FINRA’s concerns.

What FINRA wants is this: if your Reps or the Firm itself use SNS’s for business purposes, then you have to be able to supervise all postings, whether they are ‘static’ (like profiles or wall posts) or ‘interactive’ (like chats or interactive posts with third parties), and you have to be able to store all that content under SEC books and records rules (17a-3/a-4). Pre-approval of anything considered an ‘advertisement’ (the static content) is required; pre-approval is not required for interactive content, but all other requirements apply to that material.

Sound like a big job? It is! Word has it the bigger e-mail storage vendors are working on products that firms can use to meet these requirements (automatically saving the online content and providing an automated review tool for monitoring it), but I can imagine those products will not be cheap. And it’s harder to imagine small firms being able to adequately meet the supervision/r-k requirements on their own.

So, if you are going to allow Reps to participate in SNS’s, you HAVE to implement procedures to meet FINRA’s guidance. And you HAVE to follow those procedures.

If you would rather avoid this administrative challenge & expense (and the related liability of allowing the activity), you will have to be clear about your expectations of firm personnel. Make sure your procedures include a prohibition of this activity; it would also be smart to send an e-mail reminder to everyone at your firm. I suggest:

Our firm strictly prohibits you from engaging in business communications in a social media site (such as Twitter, Facebook and Linked-In, among others). Your participation in such sites must be for purely personal reasons. You may not present yourself on such sites as a representative or agent of the firm: to do so is considered “advertising” and requires pre-approval by our compliance staff. Likewise, on such sites you may not recommend securities or engage in discussions about securities or the firm’s business. Lastly, you may not: link to third party material relating to securities; assist third party site participants in preparing such material; or comment on/endorse third party posts on such material. Our firm may from time to time request access to your social networking sites in order to spot check them for compliance with this prohibition. Perceived violations will be met with disciplinary action.

No matter how you word it, the message should be clear--personnel may not use these sites for business purposes: to do so immediately puts your firm at risk.